The EU economy is emerging from recession with GDP rising by 0.3% and 0.1% respectively in the third and fourth quarter of 2009. Following a steep decline of some 19%, manufacturing production stabilised in the second quarter of 2009 and has recovered rather slowly since. Despite a small rise in December 2009, construction output was still some 13% below its former peak.

The situation varies considerably between sectors and across Member States. A number of factors still suggest that a cautious approach is warranted to the prospects for economic recovery. These include a continuing decline of output in construction, the fact that capacity utilization is still very subdued, and the likelihood of a further deterioration in labour markets reflecting the typically delayed reaction of employment to output reductions.

Looking to the future, there is also still a continuous risk that restricted availability of finance on favourable terms to firms could slow down an economic recovery. As shown in the recent access to finance survey, SMEs continue to suffer from difficult access to short term finance, whilst export credits and trade finance have declined considerably.

However, a clear strengthening of world trade, increasing new orders and growing confidence over the past months point out to an improving outlook for the EU industry. This more positive picture is also reflected in some signs of output recovery in several manufacturing sectors. A further boost to output can also be expected as manufacturers begin to rebuild their inventories that are currently at a very low level. This is quite coherent with the GDP growth forecast of 0.7% for 2010 that was published by DG ECFIN in the 'Interim Forecast' on Friday, 26th February.